With $191B To Spend, Blackstone Thinks Real Estate Has Hit Bottom

Blackstone sees a recovery in the commercial real estate market coming and is acting accordingly, making major investments in the sector, most notably in multifamily rentals. But the shift in outlook about when interest rates might begin to come down has somewhat tempered spending of the firm’s $191B of dry powder.  

“The recovery will not be a straight line, but we're not waiting for the all-clear sign to invest,” Blackstone President and Chief Operating Officer Jon Gray said in the company’s Thursday earnings call.

Blackstone deployed nearly $25B in the first quarter and has committed an additional $15M to pending deals, Gray told investors. Though $25B is more than double what it invested in Q1 2023, Blackstone’s Q1 deployment was a roughly 21% decrease from the $31B it deployed in the last three months of 2023. 

Blackstone executives told investors Thursday that in Q1 it acted on its continued belief that commercial real estate values were bottoming. This created conditions ripe for an increase in transactions, like the private equity firm’s $10B all-cash acquisition and taking private of publicly traded Apartment Income REIT Corp. earlier this month or its $3.5B deal to do the same with Tricon Residential earlier this year. 

Rental housing is “a major investment theme for [Blackstone]” due to the disconnect between supply and demand, Gray said. He pointed out that the country is building about the same number of homes every year as it did in the 1960s, despite having nearly double the population. 

Starts of both multifamily and logistics properties are down by 50% and 80%, respectively, Gray said, likely laying the foundation for a supply imbalance down the road in those sectors. 

“I would think about this period of time as a time of seed planting,” Gray said. “You want to be investing into this dislocation because there's a lot of uncertainty.” When that uncertainty passes, those investments begin to deliver accelerated returns, he said. 

This planting season may be a long one. The Federal Reserve’s eagerly anticipated interest rate cuts are likely further away than CRE would like, and that’s playing a role in Blackstone’s deployment strategy. 

The shift in expectations about when rates would be slashed caused rallies in both debt and equity markets that can make it challenging to deploy capital. Financing can get easier but prices can also get pushed up, Gray said. 

The protracted high interest rate environment and the market’s reaction to it  “extends the investment window a bit for our $191B of dry powder,” Gray said. “It may slow some of the realizations and push them out a bit as well.” 

Blackstone’s BREIT, which has been in the spotlight since December 2022 when it started limiting withdrawals to “prevent a liquidity mismatch,” got a few mentions from executives who indicated that they were confident it would bounce back given time. 

Repurchase requests in BREIT have fallen 85%, dropping to the lowest level in nearly two years, Gray said. 

“We're now seeing encouraging signs in terms of new sales, while repurchase requests are continuing their decline in April as well,” Gray said.

Last year, Blackstone’s giant nontraded REIT paid out more than $2.8B in dividends but received $2.7B in cash flow. 

Blackstone’s net income in the first quarter was $847.4M, nearly ten times the $85.8M it earned in Q1 2023.